Air travel revenue in Canada and the United States could drop by US$21.1 billion if the coronavirus outbreak spreads broadly and further erodes demand for plane tickets, according to an International Air Transport Association analysis released Thursday.
If the virus spreads, worldwide passenger revenues are expected to drop 19 per cent for a total loss of $113 billion, based on the analysis from the IATA, which represents 290 airlines comprising 82 per cent of global air traffic.
In Canada and the U.S., a 10 per cent drop in passengers would result in a $21.1-billion revenue loss for airlines. This follows a challenging year where North American airlines grappled with a capacity crunch from the grounding of Boeing’s 737 Max fleet.
Even if the virus is contained in regions that already have more than 100 confirmed cases, IATA estimated revenue loss of at least $63 billion worldwide. Bookings for April have dropped drastically in hard-hit markets including China, South Korea and Iran, where the year-over-year number of passengers has respectively fallen nearly 80 per cent, 55 per cent and 50 per cent.
“The turn of events as a result of COVID-19 is almost without precedent,” IATA chief executive Alexandre de Juniac said in a statement. “In little over two months, the industry’s prospects in much of the world have taken a dramatic turn for the worse.”
Lower oil prices could help airlines cut costs to mitigate some of the revenue loss, but most airlines lock-in fuel prices well in advance so this won’t soothe bottom lines in the short-term. IATA called on governments to consider relief on taxes, charges and slot allocation for airlines that are cutting capacity to reduce costs during the crisis.
Air Canada declined to comment on the financial impact of the outbreak thus far and isn’t expected to reveal details until it releases it first-quarter results in May. Its stock price has plummeted about 34 per cent since the beginning of the year. It closed about 8.30 per cent lower to $32.16 on Thursday.
Before the outbreak, Canada’s largest airline was already feeling the crunch in its Asia market due to protests in Hong Kong and geopolitical tensions between Canada and China, executives said on an analyst call in February. Based on past epidemics such as SARS in 2003, the airline assumes that its service to China and Hong Kong will recover by the third quarter.
In the meantime, Air Canada suspended all flights to China from February to Apr. 10, and also scaled back non-stop flights to Hong Kong and Seoul. On Wednesday, it released a new promotion that waives one-time change fees if consumers buy tickets before the end of March.
WestJet Airlines Ltd. has had limited impact on its operations and bookings thus far, particularly since it doesn’t fly directly to Asia, spokeswoman Morgan Bell said in an email. The airline, which went private in December and no longer has to reveal financial results, has been pursuing an expansion strategy that includes flights to Europe.
“We have seen isolated cancellations on certain flights, which has had limited impact on our overall guest loads at this time,” Bell said.
It’s also offering a waiver for change fees if customers book before the end of the first quarter on Mar. 31.
Air traffic took about nine months to a year to recover after dipping 20 per cent during the SARS outbreak of 2003, but COVID-19 “appears to be more global,” Citi analyst Pavan Daswani noted to clients on Wednesday.
Air traffic grew about 2.4 per cent in January, marking the slowest monthly growth since April 2010 when the volcanic ash cloud originating from Iceland reduced air travel. Daswani said that’s an early indication of COVID-19’s impact given the outbreak started to affect domestic China and Asia Pacific travel towards the end of the month.
As the outbreak spreads more broadly, travellers are expressing concerns about flying in enclosed spaces and lounging in international airports. It’s difficult for analysts to predict how this fear could compound the impact on the air travel and tourism industries — especially since the status of the outbreak changes rapidly.
For now, Canadians are getting ready to go on March break trips they’ve already booked, Association of Canadian Travel Agencies president Wendy Paradis said on Thursday.
But people are pausing before booking new travel, especially on cruise ships, said Paradis, whose association represents more than 12,000 travel agents.
In a survey of 401 of ACTA’s members last week, travel agents reported slowing demand for Asian, European and Caribbean cruises although future bookings remained normal for travel to Caribbean and Mexico.
“Quite a number of Canadians are really very much waiting to see how this transpires,” Paradis said, adding such pauses are typical during crises such as 9/11 or SARS.
“Once things start improving, then what we see is a real pent up demand for travel. Then we actually see a big upswing in bookings,” she said.
The Hotel Association of Canada, which represents 9,000 hotels across the country, has seen some impact on international travel numbers due to cancelled conferences, but hasn’t seen a drop in travel within Canada, president Susie Grynol said Thursday.
“Overall domestic travel, as of today, within Canada and consumer confidence remain strong,” she said.